Price Controls Hurting FDI In MedTech Sector

April 25, 2019

Blanket implementation of price controls has contributed to a drastic fall in Foreign Direct Investment (FDI) in the medical device sector, say industry insiders, pointing to a reduction from $439 million in 2016 to $66 million in 2018.

“Data released by the Government Department for Promotion of Industry and Internal Trade clearly show this decline which has happened even though FDI is allowed through automatic route,” said Mr. Pavan Choudary, heading the Medical Technology Association of India (MTaI). The Association represents leading global medical technology companies with a substantial footprint in India.

“We posit that this decline was the unintended consequence of the well meaning intention but the anomaly needs to be corrected,” Mr Choudary said.

Not specific to industry

Countering the argument, Pritam Datta, Fellow, National Institute of Public Finance and Policy (NIPFP), and author of “Medical Devices Manufactering Industry-estimation of market size and import dependence in India”, said, “We are talking about a country which imports 70 % of its medical devices and it is only now that we have started manufacturing high-end medical devices. While there has been a fall in this sector, it cannot be attributed only to the price control in India. We have always seen that around the election year there is a fall in FDI in all sectors. This is also a growing sector.”

Sectors in India which attract the highest FDI according to government figures include services sector, computer software and hardware and telecommunication.

Meanwhile, in 2015 the Centre approved 100% FDI in the medical devices sector via automatic route. Previously medical devices, which came under the pharma sector, could take in 100% FDI through automatic route only in case of new ventures. Further approval of Foreign Investment Promotion Board (FIPB) was needed in case of acquisition of existing companies.

The break-through came after the industry urged approval for FDI through automatic route, pointing out that there were no big firms for medical devices in India, and hence no threat of merger or acquisition.

“When in 2015 the government allowed 100% FDI through automatic route in India it took the annual FDI inflow in medical devices that year from an average of $62.5 million to $161 million. Further in the next year, 2016, the first full year of this change, the FDI rose to $439 million. The FDI seemed set for a similar climb in future and establish India as an attractive destination for investments in medical device manufacturing,” a statement from the MTal said in response to questions from The Hindu.

The FDI fell first to $184 million in 2017 and then to $66 million in 2018.

Tech intensive

The medical device industry is highly technology and capital dependent and experts say it is vital “that the global community be kept engaged for this wealth and technology inflow as well as to help co-create an ecosystem for manufacturing of medical devices in India.”

The group has now demanded that India should work towards “resuming collaboration with the capital, technology and export markets of the world.” – The Hindu